An Agreement to Enter into a Future Contract When Preparing Your First Franchise

When expanding an established business into a franchise network, there may be an interim stage: a suitable partner has been selected but is not yet ready to sign the final franchise agreement. Even so, preparations need to begin, requiring both time and money. An agreement to enter into a future contract can provide clear rules for this stage. It is not, however, a non-binding reservation or a substitute for settling the terms of the relationship.

1. Decide whether you are ready for a binding commitment

Start by distinguishing between two situations. In the first, both parties are still assessing whether the relationship is right for them. In the second, they already want to make a legally binding commitment to enter into a franchise agreement once the agreed preparations have been completed. An agreement to enter into a future contract may be appropriate in the second situation.

If you only need to assess a prospective franchisee or share confidential materials with them, a non-disclosure agreement and a clearly defined negotiation process may be more appropriate. The document’s title is not decisive: even a document labelled a ‘reservation’ may create binding obligations, depending on its content.

Do not use an agreement to enter into a future contract to paper over an unfinished concept. Unresolved fees, the scope of support or the terms for using the brand are not minor details that can safely be postponed. A prospective franchisee should not invest in preparations without knowing what kind of relationship they are committing to.

First, set out what has already been agreed and what still needs to be checked. If the outstanding issues mainly concern fundamental commercial terms, it is better to continue negotiations than to commit to signing an unknown document later.

2. Base the document on the relevant Czech rules

The Czech Republic has no dedicated franchising legislation or general requirement to register a franchise concept with an approving authority. A franchise agreement is usually concluded as an innominate contract — a contract type not specifically defined by law — under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code. Depending on its content, rules on licensing, the protection of confidential information and compensation for loss may also apply.

Agreements to enter into a future contract are, however, expressly regulated by Sections 1785–1788 of the Civil Code. Under such an agreement, at least one party undertakes, upon receiving a request, to enter into a future contract whose content has been agreed at least in general terms. The request must be made within the agreed period or, if no period has been agreed, within one year. Failure to fulfil the obligation may ultimately lead the entitled party to ask a court to determine the content of the future contract.

The law also provides for the obligation to lapse if the request is made too late or, subject to specified conditions, if circumstances change substantially. Neither party should therefore assume that it can simply change its mind about signing.

There is no specific statutory pre-contractual disclosure document or standard mandatory waiting period for franchises. However, the general rules on good faith in pre-contractual negotiations still apply. A commitment to sign in the future is not a way to avoid disclosing material information about the relationship.

3. Define the content of the future agreement and the conditions for signing

In practice, the safest approach is usually to attach a sufficiently developed draft franchise agreement and identify its version. The statutory minimum of agreeing the content in general terms may not provide enough certainty for business preparations. Clearly identify which details may still be added and how they will be determined.

In particular, the document should address:

• Who is bound: whether both parties must enter into the future agreement or only one.
• What remains to be done: for example, providing evidence of funding or completing agreed preparatory training.
• How completion is demonstrated: through a specific document or an assessment process defined in advance.
• Who requests signature and how: the delivery method, the recipient, and the deadlines both for making the request and for subsequently entering into the agreement.
• What happens if the requirements are not met: whether the commitment lapses, the preparation period can be extended or a right to end the relationship arises.

Avoid a condition such as ‘the prospective franchisee must satisfy head office’ unless you explain what it means. If the outcome of training is decisive, set the assessment criteria and the procedure following an unsuccessful result in advance.

For example, in an established café concept, the parties might agree that the prospective franchisee must provide evidence of funding and complete practical training before a request to sign is made. But it must be clear whether attendance alone is sufficient or whether specific skills must be assessed. Otherwise, the parties may interpret the same condition differently.

4. Settle costs and preparations in case the deal falls through

Alongside the commitment to sign, you need rules for the interim period. Specify who commissions professional services, who pays for them and whether the other party must approve expenditure in advance. Distinguish the prospective franchisee’s own costs from services provided by head office.

If you accept a payment, describe its actual purpose. Is it an advance towards the initial franchise fee, payment for a service already provided or another agreed payment? State when it will be credited, when it will be refunded and how it will be dealt with if the final agreement is never concluded. Simply calling it a ‘reservation fee’ does not resolve these questions.

Also expressly address access to materials and use of the brand. A preparatory agreement should not, in itself, be treated as permission to open an outlet under your brand. Specify what the prospective franchisee may use during preparations and what they must return or stop using when those preparations end.

Practical takeaway: Before signing, check that the document answers four questions: what you are committing to, on what conditions, by when, and how payments and costs will be settled if the deal falls through. If the answers are unclear, it is too early to commit to a future franchise agreement.